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18-193MR ASIC accepts variation to NAB enforceable undertaking to address inadequacies in its wholesale spot FX business
ASIC has accepted a variation to an enforceable undertaking provided by National Australia Bank Limited (NAB) relating to its wholesale spot foreign exchange (FX) business.
The variation imposes additional undertakings after an independent expert's report identified significant deficiencies in NAB’s remediation program developed as part of the original EU, accepted in December 2016 (refer: 16-455MR).
Under the original EU, NAB was required to develop a program of changes to its existing systems, controls, monitoring, training and supervision of employees within its spot foreign exchange business to prevent, detect and respond to certain types of conduct. The program and its implementation was to be assessed by an independent expert.
In accordance with the EU, NAB provided its program of changes on 28 November 2017. On 29 March 2018, the independent expert reported on NAB's spot foreign exchange program noting significant deficiencies regarding its:
- Governance, Risk Management and Compliance Framework
- Policies and Procedures
- Risk Management Practices
- Human Resource Management.
The independent expert also concluded that it was unable to complete the expert assessment of the program's effectiveness required by the EU because NAB has made incomplete progress in designing items to be included in the program.
The expert’s report states 'progress in developing the program has been slow' and that the program 'appears to have evolved iteratively during 2017, rather than through a well-defined process. For instance, there appears to have been no comprehensive risk assessment across NAB’s Spot FX business against the EU requirements and relevant regulatory standards and guidance.'
The variation of the EU imposes an additional undertaking on NAB to prepare an updated program that adequately addresses all required components. This updated program will then be subjected to further assessment by the independent expert. After these new undertakings are satisfied, NAB will be able to progress with the undertakings in the original EU.
Commissioner Cathie Armour said, 'ASIC is disappointed with the delay in the development and assessment of a remediation program to address the conduct outlined in the EU. However, we are pleased that the process has been sufficiently robust to ensure any ongoing deficiencies have been identified and are being addressed, with oversight by an independent expert. ASIC's ultimate objective is to ensure NAB has effective mechanisms in place to adequately train, monitor and supervise its employees to provide financial services efficiently, honestly and fairly'.
The wholesale spot FX market is an important financial market for Australia. It facilitates the exchange of one currency for another and thus allows market participants to buy and sell foreign currencies. As part of its spot FX businesses, NAB entered into different types of spot FX agreements with its clients, including Australian clients.
Spot foreign exchange refers to foreign exchange contracts involving the exchange of two currencies at a price (exchange rate) agreed on a date (the trade data), and which are usually settled two business days from the trade date.